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Entrepreneurship & Regional

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‘Types’ of private family firms: an

exploratory conceptual and empirical
analysis
a b
Paul Westhead & Carole Howorth
a
Durham Business School , Durham University , Mill Hill Lane,
Durham DH1 3LB, UK E-mail:
b
Lancaster University Management School , Lancaster LA1 4YX,
UK
Published online: 13 Sep 2007.
To cite this article: Paul Westhead & Carole Howorth (2007) ‘Types’ of private family firms: an
exploratory conceptual and empirical analysis, Entrepreneurship & Regional Development: An
International Journal, 19:5, 405-431, DOI: 10.1080/08985620701552405
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ENTREPRENEURSHIP & REGIONAL DEVELOPMENT, 19, SEPTEMBER (2007), 405–431
‘Types’ of private family firms: an exploratory

conceptual and empirical analysis
PAUL WESTHEAD* and CAROLE HOWORTH**
*Durham Business School, Durham University, Mill Hill Lane, Durham DH1
3LB, UK; email: paul.westhead@durham.ac.uk
**Lancaster University Management School, Lancaster LA1 4YX, UK
Family firms that can leverage entrepreneurial experience and knowledge can shape local
economic development. Practitioners concerned with fostering enterprise sustainability need to
be aware that family firms cite contrasting goals, resource profiles and requirements. Family
firms are not a homogeneous entity. The ‘targeting’ of support to ‘types’ of family firms could
enable practitioners to satisfy their wealth creation and social inclusion objectives. To stimulate
increased critical reflection, insights from agency and stewardship theories were drawn upon to
illustrate six conceptualized ‘types’ of private firms based on company ownership and
management structures as well as company objectives. Cross-sectional survey evidence was
gathered from key informants in family firms in the UK. An agglomerative hierarchical
QUICK CLUSTER analysis identified seven empirical ‘types’ of family firms. Four out of the
six conceptualized ‘types’ were validated by the exploratory empirical taxonomy. Implications
for policy-makers and practitioners as well as researchers are discussed.
Keywords: family firms; enterprise sustainability; types; agency and stewardship theory; cluster
analysis.
1. Introduction
1.1 Background
Two-thirds of private businesses in many countries are considered to be family firms

(Neubauer and Lank 1998, IFERA 2003), and they make a notable contribution to
wealth creation and job generation with reference to narrow and broad family firm
definitions (Astrachan and Shanker 2003).1 Family firms have been found to be over-
represented in rural areas (Westhead and Cowling 1998). The survival and
development of family firms, therefore, can have a profound impact on local economic
development as well as social cohesion. Recently, the Department of Trade and
Industry (DTI) (2004) in the UK considered the barriers (i.e. market failures)
impeding the development of ‘special groups’ of firms (i.e. female and ethnic-owned
firms). Surprisingly, the DTI did not specifically consider the issues facing private
family firms. Despite the scale of the family firm phenomenon, and the importance of
these firms to local (particularly, rural) economic development, many governments
have not presented formal policies to assist private family firms.
Government can encourage local and national development by facilitating the
supply of entrepreneurs (and new firms) (Organisation for Economic Co-operation
and Development (OECD) 1998, DTI 2004). Increasing the stock of businesses can
Entrepreneurship and Regional Development ISSN 0898–5626 print/ISSN 1464–5114 online ß 2007 Taylor & Francis
http://www.tandf.co.uk/journals
DOI: 10.1080/08985620701552405
406 PAUL WESTHEAD AND CAROLE HOWORTH
also enhance local job generation and wealth creation. In order to maximize returns
on their investments at national and/or local levels, policy-makers and practitioners
may seek to encourage the development of existing firms (and entrepreneurs), rather
than to solely provide support to increase the supply of nascent entrepreneurs and new
firms (DTI 2001, Westhead et al. 2005). Most new businesses are family-owned.
Studies indicate that many new firms cease to trade within a few years after business
start-up (Storey 1994). Approximately 30% of family businesses are transferred to
second generation family ownership and only 13% of family businesses survive to third
generation family owners (Ward 1987). Individuals concerned with rising business
closure rates are considering methods to encourage business survival (Stokes and
Blackburn 2001). There is an emerging view that private family firm development is
an important enterprise sustainability issue (Westhead 2003). Johannisson and Huse
(2000) suggest that family firm sustainability calls for continued entrepreneurship,
continued family involvement and professional management. They assert that a viable
enterprise must host all three ideologies, and deal with the tensions between
entrepreneurialism, paternalism and managerialism. Other theorists suggest that
issues relating to the family, ownership and management need to be considered
(Lansberg 1988, Hoy and Verser 1994).
Assuming an interventionist stance, a case for ‘targeting’ assistance to ‘winning’
firms with growth potential has been made (Storey 1994). There is, however, some
doubt about whether such assistance is necessary (Holtz-Eakin 2000) or effective
(Bridge et al. 2003). Nevertheless, the profiles of superior and weaker performing firms
have been explored (Storey 1994). The case for contextualized support toward ‘types’
of firms (Westhead 1995) and entrepreneurs (Westhead et al. 2005), rather than
‘blanket’ support to all firms has been made. Practitioners concerned with
encouraging wealth creation and job generation (DTI 2001) need to consider the
family as the oxygen that feeds the fire of entrepreneurship (Rogoff and Heck 2003).
Practitioners may target assistance to superior performing family firms to
maximize investment returns and/or encourage poorer performing family firms to
professionalize, and to focus on financial performance. Further, they may encourage
poorer-performing family firms to adopt the ownership and management structure
reported by superior-performing family firms. Most notably, the profiles (and
economic and non-economic contributions) of private family firms need to be
specifically considered by policy-makers and practitioners.
1.2 Family firm heterogeneity
Numerous studies have compared the profiles of family and non-family firms but this
research stream has reached an impasse. There is growing consensus that family firms
cannot be simplistically viewed as a homogeneous entity (Sharma 2002, Chrisman
et al. 2005). Sharma (2004), for example, has discussed four ‘types’ of family firms with
regard to the family and business dimensions. Variations in firm performance were
considered with regard to financial and emotional capital. The four following ‘types’
of family firms were conceptualized: warm hearts-deep pockets; pained hearts-deep
pockets; warm hearts-empty pockets; and pained hearts-empty pockets. This insightful
conceptual framework was not theoretically grounded, nor empirically validated.
Sharma’s study suggests that a fruitful avenue for future studies is the exploration
of whether variations in firm performance are shaped by family firm ‘type’.
TYPES OF PRIVATE FAMILY FIRMS 407
Further, private family firm heterogeneity needs to be considered when business
development and sustainability initiatives are designed.
Sharma (2004: 9) concluded that ‘Some preliminary efforts are underway
to develop general purpose classification systems that distinguish family firms from
non-family firms and between different types of family firms’. She asserted that an
important fruitful avenue for research is the identification of different ‘types’ of family
firms. The failure to recognize contrasts between ‘types’ of family firms could impact
on the validity and generalizability of research evidence. Further, assumptions relating
to the stereotypical family firm (Zahra et al. 2004) may encourage practitioners to
provide inappropriate assistance to particular ‘types’ of family firms that do not fit the
stereotypical family firm profile.2
1.3 Research focus and purpose

Private family firms shape economic development, particularly the development of

rural economies. The non-financial objectives (i.e. family agendas) of some family
firms need to be appreciated by practitioners. Assuming an interventionist stance,
practitioners seeking to nurture the existing pool of entrepreneurial knowledge need to
be aware that the goals, resources and needs of family firms (Habbershon et al. 2003,
Sirmon and Hitt 2003) differ, and there may be a need for targeted support to each
‘type’ of firm (Westhead and Howorth 2006). A case for targeting support to superior
performing ‘types’ of family firms could be made to maximize investment returns.
Conversely, to ensure a diverse entrepreneurial pool, for example, in rural areas with
relatively lower levels of new firm formation and lower business stocks, there may be
a case to identify under-performing ‘types’ of family firms, and encourage them to
move towards the profile and orientation of higher-performing ‘types’ of family firms.
Despite a growing appreciation that a family firm’s profile can shape its
development (Litz 1997, Westhead et al. 2001, 2002, Steier et al. 2004), there is a
dearth of conceptual and empirical studies that explore the profiles of contrasting
‘types’ of private family firms. The purpose of this exploratory study is to provide fresh
insights surrounding the profiles of different ‘types’ of private family firms, which may
be linked to variations in financial and non-financial performance.3, 4 A novel
contribution of this study is the presentation of two classifications, which can
subsequently be used to explore the performance of different ‘types’ of family firms.
A conceptually derived typology is presented as well as an empirically-derived
taxonomy (Hambrick 1984). The frame of interest for both classifications was private
family firm performance. Selected themes (and variables) considered in both
classifications were guided by insights from two widely respected and complementary
theories. Agency and stewardship theories have previously been employed together
(Lee and O’Neill 2003). Drawing upon insights from both perspectives, the themes of
company ownership and management structures as well as company goals
(i.e. financial and family objectives) were utilized to illustrate six conceptualized
‘types’ of private family firms. Four out of the six conceptualized ‘types’ of family firms
were validated by an exploratory empirical taxonomy.
Studies focusing upon corporate governance issues in private firms located outside
the US context are still relatively rare (Huse 2000). Archival data relating to the
population of family and non-family unlimited companies is not available. Primary
data were gathered in the UK relating to variables that are not widely or publicly
available (Huse 2000). A novelty of this study is to move beyond the ‘black-box’
assumptions associated with an agency perspective. Guided by insights from agency
and stewardship theories, cross-sectional survey evidence was gathered from key
informants in family firms relating to company ownership and management structures
as well as company objectives. Potential problems with self-reported information from
key informants were considered. A further novel contribution of this study is the
utilization of multivariate statistical techniques to identify an exploratory empirical
taxonomy of seven ‘types’ of family firms.5 The latter empirical taxonomy was then
mapped on top of the conceptual typology, and close alignment was detected.
To avoid an impasse in family firm performance studies, we suggest that future studies
need to explore whether certain ‘types’ of firms report superior levels of financial and
non-financial performance.
This paper is structured as follows. In the following section, agency and
stewardship theories are briefly summarized. The themes of company ownership
and management structures as well as company objectives are then discussed. With
reference to these themes, six conceptualized ‘types’ of family firms are illustrated. The
data collection and research methodology is then detailed. Data standardization by
Principal Components Analysis (PCA) is reported. This is followed by a discussion of
the empirical taxonomy of seven ‘types’ of private family firms identified by
agglomerative hierarchical QUICK CLUSTER analysis. Validity issues are then
discussed. In the following section, the limitations of the study are acknowledged.
Finally, conclusions and implications for policy-makers and practitioners as well as
researchers are discussed.
2. Conceptualized ‘types’ of family firms
2.1 Context
In this section, agency and stewardship theories are briefly discussed. Private family
firms may differ with reference to the three themes of ownership, management and
objectives (James 1999). These themes are then discussed in turn. With reference to
the three themes, six conceptualized ‘types’ of family firms are illustrated.
2.2 Agency theory
Corporate governance theorists have utilized the agency perspective to explore control
issues in listed firms with diffuse ownership (Hart 1995, Kaplan and Strömberg 2001,
Keasey et al. 2005), and specifically the links between risks and board structures and
functions. Traditionally, agency theory is employed to examine links between
ownership and management structures, objectives and performance. This perspective
‘assumes self-interested, boundedly rational actors, information asymmetry and goal
conflict to motivate principals (i.e. family firms owners) to devise mechanisms to monitor
and control agents’ actions (i.e. non-family managers)’ (Sapienza et al. 2000: 336).
Corporate governance (Huse 2000, Lynall et al. 2003) and ownership transfer and
succession issues relating to private firms are also attracting academic and practitioner
attention (Handler 1994, Morris et al. 1996, 1997, Birley et al. 1999, Bjuggren and
Sund 2001, Sharma et al. 2003, Westhead 2003, Sharma and Irving 2005).
Studies (Schulze et al. 2001, 2002, 2003, Westhead et al. 2001, 2002) have highlighted
the important influences of firm ownership and governance as well as firm objectives
on the strategic behaviour of family firms (Brunninge et al. 2005).
The stereotypical family firm is assumed to be owned and managed by a
concentrated group of family members, where the firm’s objectives are closely-linked
to family objectives (Zahra et al. 2004). In these circumstances, the traditional agency
cost issue may not apply (Sapienza et al. 2000). However, in order to grow and survive,
some private family firms may no longer have aligned ownership and management in
the same ‘family’ hands, and this raises the potential for agency issues between
separated family owners and non-family managers. Agency theory assumes a
performance-based system with a focus on financial objectives, and individuals that
are self-serving. If the objectives of owners and management differ there can be agency
problems (Schulze et al. 2001, Morck and Yeung 2003). Owners seeking to minimize
risks (Sapienza et al. 2000) when focusing on financial objectives (Smyrnios and
Romano 1994) may introduce agency control mechanisms such as performance-

related pay (Schulze et al. 2003) and non-executive directors (NEDs) (Westhead et al.
2001) to enhance firm performance. Agency theory has been shown to be useful in
understanding the interaction between family owners and non-family managers
(Chua et al. 2003).
2.3 Stewardship theory
Emerging research questions may be more appropriately explored with reference to

conceptual platforms that draw upon complementary theories, rather than reliance on
a single perspective such as agency theory (Eisenhardt 1989, Hoskisson et al. 1999,
Sapienza et al. 2000). Where agency theory is ‘silent’ (Arthurs and Busenitz 2003), as
for example in some family firms (Zahra 2003, Sharma 2004), stewardship theory
(Donaldson 1990) provides a useful counterpoint and suggests additional insights.
Family firm managers may act as stewards. The latter non-family managers would
seek to protect the assets of the family firm rather than to pursue interests that
maximize their own personal gain (Donaldson and Davis 1991). Stewardship theory
assumes a relationship-based system with a focus on non-financial objectives.6 There
are no agency costs because managers’ and employees’ motives are aligned to those
of the organization (Davis et al. 1997), and so they are organization-serving (Randoy
and Goel 2003). A strong psychological ownership of the firm and a high occurrence
of altruism are assumed. The latter traits are associated with the stereotypical family
firm (Schulze et al. 2003), and a degree of overlap between the family, ownership
and management sub-systems in terms of people and objectives is assumed
(Chrisman et al. 2005).
2.4 Themes highlighted by the complementary theories
In line with agency theory, family firms with more diluted ownership and management
may focus on financial objectives and exhibit a self-serving culture. However,
family firms associated with ‘family agendas’ may be owned and managed differently
(Dyer 2003). In line with stewardship theory, stereotypical family firms that are closely
held, family owned and family managed may focus on non-financial interests.
Their prevailing culture may be organization (family) serving. The two complementary
theoretical perspectives highlight that the themes of company ownership
and management structures as well as company objectives need to be considered
when exploring the profiles of private firms. Each of these themes is discussed, in
turn, below.
2.5 Company ownership structure
As family firms progress from one generation to the next, the structural form of
ownership and management may change (Lansberg 1999). Over time, the ownership
base of the firm may become more complex if more family members acquire an equity
stake. To ensure business development, owners of some family firms may sell ordinary
voting shares to ‘outsiders’ who are not drawn from the dominant family group. The
vertical axis in figure 1 illustrates that ownership of the firm may be held by a close
family, but ownership can also be diluted within the family, or diluted outside the
family when non-family members acquire an equity stake.
2.6 Management structure
Owners focusing on ‘family agendas’ may favour the recruitment of family members
to manage the family firm. Directors who are members of the dominant family can
exert pressure to ensure that ‘family agendas’ and the cultural foundations of the
business are considered. The limited pool of family members may constrain the extent
of expertise and experience available. Owners focusing on wealth creation and
business development may prefer to recruit non-family professional managers with
broad expertise. Daily (1995) noted that the chief executive officers (CEOs) of smaller
firms with larger equity holdings had smaller boards with less ‘outside’ representation.
Moreover, Barach (1984) found that many family firms had small boards, and family
directors dominated these boards. Larger boards of directors and more outside
directors may be associated with agency control and/or growing family firms. The
likelihood that a small private firm employs an ‘outside’ board member can increase
with regard to the proportion of ownership held by individuals outside the firm
(Fiegener et al. 2000). ‘Outsiders’ can be selected to resolve complicated CEO
successions. Fiegener et al. a noted that CEOs who intended to transfer the business to
a relative upon retirement were significantly less likely to have recruited ‘outside’
board members. The recruitment of non-executive directors (NEDs) may be initiated
to formalize the family firm, to ensure ‘family agendas’, and to avoid conflict between
the objectives of family owners and non-family members (Mitchell et al. 2003).
However, studies suggest that few family firms employ NEDs (Westhead et al. 2001).
This discussion suggests that family firms may vary with regard to whether
management is dominated by family or non-family members. The horizontal axis
in figure 1 illustrates that family members may hold management of the family
firm alone, but in some family firms management of the firm can be allocated to
non-family managers.
FINANCIAL
OBJECTIVES
Diluted
outside Transitional family Open family firms
the firms (C2, C4)
family
Ownership
Diluted
within Cousin consortium Professional cousin
the family firms (C1) consortium family
family firms
Close Average family Professional family

family firms (C3, C6, C7) firms (C5)
FAMILY
OBJECTIVES
Family Non-family
dominant dominant
Management
Figure 1. Conceptualized ‘types’ of family firms.

Notes: (a) Empirical types of family firms are reported in brackets; C1 ¼ ‘cousin
consortium family firms’; C2 ¼ ‘large open family firms’; C3 ¼ ‘entrenched average
family firms’; C4 ¼ ‘multi-generational open family firms’; C5 ¼ ‘professional family
firms’; C6 ¼ ‘average family firms’; C7 ¼ ‘multi-generational average family firms’.
2.7 Company objectives
The earlier discussion of agency and stewardship theories highlighted that the
ownership and management structures of family firms may be closely associated
with their financial- and/or organization-serving objectives. Separation of ownership
and control provides the potential for changes to the management structure, and
the possibility of agency control mechanisms (Randoy and Goel 2003). As more
non-family members are introduced into the management structure there could be
a move towards greater self-serving behaviour, and a focus on financial objectives.
Conversely, if a family maintains control of the firm, and seeks to provide employment
positions for family members, the family firm may be associated with organization-
serving objectives.
Dilution of ownership may be associated with non-family shareholders that request
the introduction of monitoring systems to ensure that their interests are secured. Firms
focusing on governance issues may lessen their focus on family objectives, and firm
behaviour may be more aligned to an agency rather than a stewardship perspective.
Dilution of ownership outside the family may enable non-family members to shape
company objectives and development.
Owners of family firms generally cite the following objectives: transfer
ownership to the next generation; maintain financial independence of the
family and the business; favour family members in managerial positions; and
ensure the survival of the family business as a going concern (Westhead 1997).
Family firms may differ with regard to the extent that family objectives
are emphasized (Leenders and Waarts 2003, Steier 2003). Firms associated with
multiple objectives may focus on a combination of financial and family objectives.
The company objectives of family firms are considered within figure 1.
Family objectives are expected to be most important for closely family owned
and family managed firms. Conversely, financial objectives will have
increased importance when ownership of the firm is diluted, and when non-family
members dominate management. A spectrum of objectives may be reported

between the two extremes (i.e. close family owned and managed firms compared
with firms with diluted ownership outside the family that are managed by non-family
members).
2.8 Six conceptualized ‘types’ of family firms
Six conceptualized ‘types’ of family firms are highlighted in figure 1. A distinction is

made between firms that have close family ownership, those that are diluted within
the family, and those diluted outside the family (i.e. the vertical axis). Moreover,
a distinction is made between firms that have family-dominated management and
those that have non-family dominated management (i.e. the horizontal axis). The
cross-cutting theme of financial objectives (i.e. agency theory) and family/
non-financial objectives (i.e. stewardship theory) is represented by the arrow within
figure 1. The relative importance of financial or family objectives is represented by the
distance in a straight line between the ends of the arrow.
‘Average family firms’ emphasize family objectives and have closely-held family
ownership and family management. ‘Professional family firms’ report a mix of family and
non-family objectives, but emphasize family objectives. They have closely-held family
ownership and management dominated by non-family members. ‘Cousin consortium
family firms’ (Gersick et al. 1997) report a mix of family and non-family objectives. They
have diluted ownership within the family and management dominated by family
members. ‘Professional cousin consortium family firms’ have diluted ownership within the
family and management dominated by non-family members. Further, ‘professional
cousin consortium family firms’ place more emphasis on financial objectives than ‘cousin
consortium family firms’, and they place less emphasis on family objectives. ‘Transitional
family firms’ report both family and non-family objectives, but they place greater
emphasis on financial objectives. They have diluted ownership outside the family but
family members dominate management. These firms are transitional because the
management is expected to move towards less family dominance. Finally, ‘open family
firms’ focus on financial objectives. They have diluted ownership outside the family and
non-family management is dominant. Owing to separated company ownership and
control, the latter firms may report agency issues.
3. Data collection and research methodology
3.1 Data collection
Evidence relating to family and non-family firms is not published in the UK.
To explore the family firm phenomenon, primary data needs to be collected, which
can be costly and time-consuming. This exploratory study analyses a historic database
of private firms, which has been used to explore several issues relating to the family
firm phenomenon (Westhead 1997, 2003, Westhead and Cowling 1997, 1998,
Westhead et al. 2001, 2002). This database is associated with several advantages.
A distinction could be made between family and non-family private companies. This
database held several variables relating to the themes of company ownership and
management structures as well as company objectives.
Data quality issues were considered when the database was collected. Industry and
locational sampling proportions were simultaneously identified for a stratified random

sample of private limited liability companies located throughout the UK, based
on the population of businesses registered for Value Added Tax (VAT) in 1993.7
Inter-generational issues are of particular importance for the owners of family firms
therefore the sample related to independent private companies that were at least 10
years old.
The structured questionnaire was posted during May 1995 to 905 private
companies drawn from a cleaned list of companies provided by Dun and Bradstreet.
To control for response bias, a single respondent was targeted, generally the CEO
of the company.8, 9 During the 4-month data collection period, 18 companies
identified as non-valid respondents were removed from the sampling frame. After
a three-wave mailing, 427 questionnaires were obtained from a valid sample of 887
private companies, achieving a noteworthy 48% valid response rate.10, 11
Chua et al. (1999) have asserted that it is unreasonable to use a family firm
definition that excludes a large number of respondents who insist they are family firms.
An inclusive family firm definition (Westhead and Cowling 1998), which is widely
used (Poutziouris et al. 2006), was operationalized. A firm was regarded as a family
firm if more than 50% of ordinary voting shares were owned by members of the largest
single family group related by blood or marriage and the company was perceived by
the CEO/Managing Director/Chairman to be a family business. Conversely, firms
were regarded as non-family firms if they failed to report both conditions.
We acknowledge that the presented taxonomy may be sensitive to the family firm
definition operationalized. Some 272 of the 427 surveyed companies (64%)
were regarded as family companies. In 98% of the surveyed companies the CEO
provided data.
Variables relating to company ownership and management structures as well
as company objectives were collected to derive a theoretically-grounded empirical
taxonomy (Hambrick 1984, Woo et al. 1991, Westhead 1995) of family firm ‘types’.
The eighteen surrogate variables are reported in table 1. Two variables relating to the
number of ordinary shareholders and the proportion of ordinary shares owned by the
largest family group were ascertained (OI1 and OI2). A variable relating to whether
a company was a first or multi-generation family firm was ascertained (ORF1).
In identifying ‘types’ of family firms, we expected variations in the diversity
of shareholdings, and the proportion of family ownership. Family firms with diverse
shareholdings and diluted family ownership, were expected to be associated with
414
Table 1. Company objectives, ownership and control variables: varimax rotated component Matrix (*) (**) (y) (z) (n ¼ 237).
Varimax rotated components
Communality
Company ownership, control and objectives variables Mean Standard deviation 1 2 3 4 5 6 (h2)
CI2 Number of directors 2.91 1.53 0.78 0.05 0.09 0.16 0.06 0.03 0.65
CI5 Number of people in the management team 4.49 3.68 0.77 0.06 0.02 0.06 0.06 0.02 0.60
CI3 Proportion of directors from the largest family group 81.31 25.31 0.75 0.10 0.12 0.16 0.01 0.09 0.62
CI6 Proportion of management team 59.65 33.29 0.72 0.06 0.02 0.16 0.07 0.22 0.60
from the largest family group
CI4 Board employed a non-executive director (x) 0.17 0.38 0.61 0.17 0.17 0.19 0.12 0.09 0.49
OI2 Proportion of ordinary voting shares that are 90.20 15.77 0.54 0.15 0.06 0.06 0.07 0.17 0.36
owned by members of the largest family group
CO1 A prime objective is to accumulate family wealth ({) 3.70 0.95 0.06 0.83 0.05 0.10 0.09 0.05 0.72
CO2 A prime objective is to maintain/enhance 3.81 1.03 0.17 0.79 0.12 0.05 0.04 0.01 0.67
the lifestyle of the owners ({)
CO3 A prime objective is to ensure 4.69 0.55 0.02 0.02 0.76 0.01 0.01 0.01 0.58
the survival of the business ({)
CO4 A prime objective is to ensure that our 4.19 0.77 0.10 0.03 0.68 0.15 0.28 0.07 0.58
employees have secure jobs in the business ({)
CO5 A prime objective is to ensure 4.13 0.87 0.05 0.24 0.62 0.37 0.16 0.07 0.61
independent ownership of the business ({)
PAUL WESTHEAD AND CAROLE HOWORTH
ORF1 Second or more generation family firm (x) 0.45 0.50 0.11 0.15 0.11 0.78 0.05 0.23 0.71
CO6 A prime objective is to pass 3.36 1.04 0.04 0.30 0.18 0.63 0.04 0.30 0.61
the business on to the next generation ({)
CO7 A prime objective is to increase 4.03 0.89 0.19 0.29 0.07 0.11 0.77 0.02 0.73
the market value of the business ({)
CO8 A prime objective is to enhance the reputation and 3.90 1.01 0.15 0.24 0.22 0.22 0.73 0.02 0.71
status of the business in local community ({)
OI1 Number of ordinary shareholders (logs to base 10) 0.61 0.72 0.03 0.09 0.12 0.19 0.03 -0.80 0.70
CO9 It is important that day-to-day operations are 3.28 1.03 0.26 0.20 0.10 0.26 0.01 0.60 0.55
TYPES OF PRIVATE FAMILY FIRMS
the responsibility of family members ({)
CI1 CEO is a member of the single dominant 0.87 0.33

family group that owns the business (x) (k)
Sums of squares of 3.13 1.75 1.62 1.46 1.28 1.25
the component loadings
Percentage of variance 18.41 10.29 9.53 8.59 7.53 7.35
Cumulative percentage of variance 18.41 28.70 38.23 46.82 54.35 61.70
Notes: (*) More than 50% of voting shares are owned by a single family group related by blood or marriage and the company is perceived to be a family business; (**) Data
derived from postal questionnaire survey; (y) Kaiser-Meyer-Olkin measure of sampling adequacy ¼ 0.6755; (z) Bartlett test of sphericity (chi-square) ¼ 851, significance
level ¼ 0.0000; (x) Measured on a scale where 1 ¼ ‘yes’ and 0 ¼ ‘no’; ({) Measured on a scale where 1 ¼ ‘strongly disagree’, 2 ¼ ‘disagree’, 3 ¼ ‘neutral’, 4 ¼ ‘agree’, and
5 ¼ ‘strongly agree’; and (k) Variable was associated with a low communality and was removed from the reported R-mode PCA model.
415
financial objectives and agency control mechanisms. Six variables relating to the size
and composition of the board and management team were also ascertained (CI1 to
CI6). In identifying ‘types’ of family firms, we expected variations in the size and
composition of the board of directors and the management team. Larger boards and
more outside (non-family) representation on the board and within the management
team were expected to be associated with family firms that focus on financial
objectives. Nine company objectives variables (CO1 to CO9) relating to family and
business issues were selected. In identifying ‘types’ of family firms, we expected that
there would be variations in the extent to which family firms emphasized financial and
non-financial (or family) objectives. Family firms that focus on financial objectives
may align to the agency perspective.
Respondents that filed missing information returns to any of the selected 18
variables were excluded from any further analysis. In total, 237 respondents provided
complete data sets for the selected variables.12
3.2 Data standardization by Principal Components Analysis (PCA)
Cluster analysis (or classifications) can be distorted by unstandardized data and

strongly correlated variables (Hambrick 1984, Shaw and Wheeler 1985, Hair et al.
1995). An R-mode principal components analysis (PCA) was selected to create a new
smaller set of standardized variables (Norusis 1990).13 This technique addresses
several data problems (i.e. unstandardized data and strongly correlated variables),
which may distort a grouping analysis technique. The data matrix (or component
scores) from the PCA analysis would then be subsequently analysed by cluster analysis
to group (or classify) firms into distinct clusters (or groups). Eighteen ‘raw’ variables
relating to the conceptual typology presented in figure 1 were transformed and ortho-
normalized by a PCA. Each variable was given equal weight in the PCA. The variable
relating to whether the CEO was a member of the single dominant family group that
owned the business had a low communality, and was removed from the model. All the
assumptions of the PCA model were satisfied with regard to the remaining 17
variables.14, 15 Diagnostics are reported at the bottom of table 1. Six components with
sums of squares of the component loadings (i.e. eigenvalues) greater than unity were
identified by the varimax rotated PCA.16 Each variable had a component loading of
0.50 or higher on only one component.17 Only two variables had side-loadings of 0.30
or more on another component. Adequate convergent validity of the components was
evident.
The six components accounted for 62% of the total variance.18 Labelling of each
component was based on the component loadings that were statistically significant at
the 0.05 level (Hair et al. 1995). The following descriptive labels were given: closely
and family owned and controlled (component 1); family lifestyle objectives
(component 2); security and survival objectives (component 3); family succession
objectives (component 4); wealth maximization objectives (component 5); and
concentrated shareholding and family control objective (component 6). Observed
patterns relating to each of the six rotated components appeared to be conceptually
valid. The components highlighted contrasting financial and non-financial objectives
and variations in family ownership and management. Component 1 scores were
positive for family firms that aligned with the stewardship perspective, and negative
for firms that aligned with the agency perspective. High positive component 5 scores
represented a focus on financial objectives, while high positive scores on component 2
represented a focus on non-financial objectives. Moreover, high positive scores on the
other components represented a focus on various non-financial objectives.
3.3 Empirical taxonomy of seven ‘types’ of private family firms
3.3.1 Agglomerative hierarchical QUICK CLUSTER analysis

The 237 firms by 6 components matrix of standardized and ortho-normalized
component scores formed the data matrix for an agglomerative hierarchical QUICK
CLUSTER analysis (Norusis 1990).19, 20 Representativeness of the sample and
multicollinearity assumptions were all satisfied.21 This nearest centroid grouping
analysis sorted and assigned firms to the cluster for which the squared Euclidean
distance between the firm and the centre of the cluster (centroid) was smallest.22
Determination of the appropriate number of clusters (or ‘types’) is a key arbitrary

decision (Hambrick 1984), and there is no objective selection procedure (Hair et al.
1995). Intuitive conceptualization of theoretical relationships may suggest a natural
number of clusters (Woo et al. 1991). Empirical data was not forced to fit the
theoretical conceptualization presented in figure 1. The seven-cluster solution was
selected because it is interpretable, and it occurred before the distances at which
clusters were combined became too large. The seven clusters highlighted different
permutations of company ownership and management structures as well as company
objectives.
One-way analysis of variance tests were conducted for each of the six components
analysed by QUICK CLUSTER analysis. Results presented in table 2 show that the
seven clusters were well separated based on the distances from their centres. The
QUICK CLUSTER analysis was based on a component score matrix that accounted
for 62% of the variance in the ‘raw’ data, therefore Kruskal-Wallis and chi-square
statistics were also calculated to examine differences between each of the seven clusters
with respect to the original ‘raw’ data relating to the 17 variables analysed by the
PCA. Table 3 shows that statistically significant contrasts were recorded among the
seven clusters with respect to all 17 ‘raw’ variables.
In order to allocate a descriptive label to each of the seven clusters, the cluster
mean for each of the 17 ‘raw’ variables was compared to the respective global mean for
that ‘raw’ variable (table 3). Cluster means for a ‘raw’ variable that deviated by more
than a full or half a standard deviation from the respective ‘raw’ global mean are
highlighted in table 3, and used to identify the distinguishing characteristics of each
Table 2. Between- and within-cluster mean square variability for the seven
cluster solution.
Between-cluster Within-cluster
mean square mean square
Variable (cluster MS) d.f. (error MS) d.f. F Probability
Component 1 17.45 6 0.57 230 30.59 0.000

Component 2 14.06 6 0.66 230 21.32 0.000
Component 3 18.43 6 0.55 230 33.81 0.000
Component 4 6.07 6 0.87 230 6.99 0.000
Component 5 17.48 6 0.57 230 30.68 0.000
Component 6 22.61 6 0.44 230 51.82 0.000
Table 3. Cluster characteristics of family companies by company ownership, control and objectives variables.
Clusters
418
Variables components
Variables (a) related to principal 1 2 3 4 5 6 7 Global mean Standard deviation
Number of directors (y) 1 2.11 8.67 2.21 3.78 3.08 2.50 3.41 2.91 1.53
* ** *
Number of people in the management team (y) 1 3.56 24.00 2.53 6.61 4.65 3.48 5.28 4.49 3.68
** * *
Proportion of directors from the 1 85.19 33.73 89.47 62.35 66.70 89.71 82.99 81.31 25.31
largest family group (y) ** * *
Proportion of management team from 1 51.69 12.58 81.93 35.56 44.59 69.84 55.38 59.65 33.29
the largest family group (y) ** * *
Board employed a non-executive director (z) (x) 1 0.00 0.67 0.05 0.56 0.08 0.06 0.31 0.17 0.38
** **
Proportion of ordinary voting shares that are owned 1 91.78 75.33 96.90 77.44 85.73 94.64 89.07 90.20 15.77
by members of the largest family group (y) * *
A prime objective is to accumulate 2 4.00 4.33 2.90 2.83 3.39 3.97 4.38 3.70 0.95
family wealth (y) ({) * * * *
A prime objective is to maintain/enhance the 2 4.11 4.33 3.63 2.89 3.42 4.02 4.48 3.81 1.03
lifestyle of the owners (y) ({) * * *
A prime objective is to ensure the survival of 3 4.89 4.33 4.32 4.83 3.89 4.84 4.86 4.69 0.55
the business (y) ({) * * **
A prime objective is to ensure that our employees 3 4.44 3.33 3.37 4.31 3.54 4.44 4.17 4.19 0.77
have secure jobs in the business (y) ({) ** ** *
A prime objective is to ensure independent 3 4.44 5.00 3.68 4.06 2.92 4.29 4.79 4.13 0.87
ownership of the business (y) ({) ** * ** *
Second or more generation family firm (z) (x) 4 0.56 0.33 0.21 0.78 0.46 0.30 0.76 0.45 0.50
* *
A prime objective is to pass the business on to 4 3.00 4.00 3.05 3.36 2.69 3.39 4.10 3.36 1.04
the next generation (y) ({) * * *
A prime objective is to increase the market value 5 4.22 4.67 2.79 4.19 4.15 4.32 3.24 4.03 0.89
of the business (y) ({) * ** *
A prime objective is to enhance the reputation and 5 4.56 3.00 3.05 4.42 3.62 4.14 2.97 3.90 1.01
status of the business in local community (y) ({) * * * * *
Number of ordinary shareholders 6 3.66 0.69 0.37 0.70 0.44 0.42 0.59 0.61 0.72
(logs to base 10) (y) **
It is important that day-to-day operations are the 6 2.56 3.67 3.47 2.69 2.81 3.50 3.62 3.28 1.03
responsibility of family members (y) ({) * *
Number of companies in the cluster 9 3 19 36 26 115 29
Notes: (*) Cluster mean which deviates by more than half a standard deviation from the respective global mean; (**) Cluster mean which deviates by more than a standard
PAUL WESTHEAD AND CAROLE HOWORTH
deviation from the respective global mean; (y) Kruskal-Wallis coefficient statistically significant at the 0.001 level of significance for the seven clusters; (z) A chi-square statistic
could not be calculated because more than 20% of the observed categories had less than 5 expected observations. Chi-square coefficient statistically significant at the 0.001 level
of significance for five clusters (excluding the respondents in clusters 1 and 2); (x) Measured on a scale where 1 ¼ ‘yes’ and 0 ¼ ‘no’; ({) Measured on a scale where 1 ¼ ‘strongly
disagree’, 2 ¼ ‘disagree’, 3 ¼ ‘neutral’, 4 ¼ ‘agree’, and 5 ¼ ‘strongly agree’.
Table 4. Final cluster centres: average ortho-normalized component scores.
Clusters
Component 1 2 3 4 5 6 7
1. Closely family owned and controlled 0.60 3.76 0.71 0.94 0.20 0.35 0.30
2. Family lifestyle objectives 0.62 1.70 0.58 1.08 0.28 0.21 0.76
3. Stability, security and survival objectives 0.36 0.39 0.85 0.31 1.71 0.30 0.37
4. Family succession objective 0.50 0.48 0.23 0.37 0.44 0.22 0.76
5. Wealth maximization objective 0.25 0.39 1.40 0.40 0.19 0.37 1.24
6. Concentrated shareholding and family 3.64 1.04 0.33 0.20 0.15 0.28 0.07
management objective
cluster.23 The combination of ‘raw’ variables that contributed to each of the

components (discussed above and detailed in table 1) was then scanned for each
cluster. Further, the cluster mean for each of the earlier identified principal
components was calculated (table 4). Overall, the results from the two analyses
were reasonably consistent and formed the basis for identifying the seven empirical
‘types’ of family firms. Guided by the earlier discussion relating to conceptualized
‘types’ of family firms (figure 1), the clusters were labelled as follows.
3.3.2 Cluster 1 – cousin consortium family firms

Cluster 1 has 9 members and is associated with a group of firms with diluted family
shareholdings. They placed less emphasis on family management as an objective and
greater emphasis on the status of the firm. These firms did not markedly differ from
the respective averages with regard to the proportion of family ownership or
management, and the importance of other objectives.
3.3.3 Cluster 2 – large open family firms

Cluster 2 has only three members.24 While this may seem to be a small group, firms in
this cluster were markedly different from other family firms across a wide range of
variables. Firms had larger boards of directors and management teams, more outside
(non-family) representation on the board and management team, and less family
ownership. These firms were more likely to have employed a NED. They reported a
mix of family and financial objectives. Greater emphasis was placed on family wealth
and lifestyle, independent ownership and increasing market value, while less emphasis
was placed on long-term security.
3.3.4 Cluster 3 – entrenched average family firms

Cluster 3 is a group of 19 family owned and controlled firms. Firms did not differ from
the respective averages with regard to their emphasis on family objectives. They
placed less emphasis on non-family objectives such as increasing market value,
business survival, reputation, independence and employee job security. Further, firms
generally reported high proportions of family managers.
3.3.5 Cluster 4 – multi-generation open family firms

Cluster 4 is the second largest cluster with 36 members. Firms had diluted ownership
and control and they were more likely to be multi-generation firms. Family members
generally owned a smaller percentage of shares. Firms, on average, had more directors
and managers; with a smaller percentage of them being family members. A NED was
generally employed. Less emphasis was placed on family lifestyle objectives.
3.3.6 Cluster 5 – professional family firms

Cluster 5 is a group of 26 members. Firms were closely-held family firms associated
with more non-family management. Less emphasis was placed on inter-generational
succession objectives, the survival of the business, employee job security or
independent ownership.
3.3.7 Cluster 6 – average family firms

Cluster 6 is the largest group with 115 members. Firms were family owned and
controlled, and they focused on family objectives. None of the variables were markedly
different from the respective global means. We can infer here that they were ‘average’
(or stereotypical) family firms.
3.3.8 Cluster 7 – multi-generation average family firms

Cluster 7 has 29 members and was associated with multi-generation family firms that
focused on family lifestyle and inter-generational ownership transfer objectives. Family
ownership and management were not markedly different from the respective global
means. Independent ownership was generally emphasized but less importance was
given to increasing market value.
4. Validity issues
A validation test was conducted to ascertain whether the cluster solution was
representative of the general population of firms in the UK (i.e. generalizable). The
appropriateness of the seven-cluster taxonomy was tested using discriminant analysis.
The final model that minimized the Wilks’ lambda () included all 17 ‘raw’ variables.
Classification results from the final model presented in table 5 show that the seven-
cluster solution is optimal. Approximately 92% of firms were correctly classified. Only
19 firms were allocated to a group/cluster other than that specified by the cluster
analysis. The criterion of predictive (or criterion) validity was supported (Hair et al.
1995).
In line with agency theory, firms focusing more upon financial objectives generally
reported organizational structures which suggest a self-serving culture (i.e. firms in
clusters 2 (‘large open family firms’), 4 (‘multi-generation open family firms’) and 5
(‘professional family firms’)). Moreover, firms predominantly focusing upon non-
financial objectives generally reported an organization-serving culture as expected by
stewardship theory (i.e. firms in clusters 1 (‘cousin consortium family firms’), 3
(‘entrenched average family firms’), 6 (‘average family firms’) and 7 (‘multi-
generation average family firms)). This evidence provides an indication of the validity
of the complementarity of agency and stewardship theories to discuss family firms.
The empirical taxonomy was mapped on top of the conceptual typology, and close
alignment was detected. Four out of the six conceptualized ‘types’ of family firms were
empirically validated as follows: firms in cluster 3, 6 and 7 related to conceptualized
‘average family firms’; firms in cluster 5 related to conceptualized ‘professional family firms’;
firms in cluster 1 related to conceptualized ‘cousin consortium family firms’; and firms in
clusters 2 and 4 related to conceptualized ‘open family firms’ (figure 1). However, two
Table 5. Classification results from a discriminant analysis model evaluating the
accuracy of the taxonomy produced by the cluster analysis.
Predicted cluster membership Percentage of

Actual cluster Number of grouped companies
/group companies 1 2 3 4 5 6 7 correctly classified
Cluster 1 9 8 0 0 0 0 1 0 8
88.9% 0.0% 0.0% 0.0% 0.0% 11.1% 0.0% 88.9%
Cluster 2 3 0 3 0 0 0 0 0 3
0.0% 100.0% 0.0% 0.0% 0.0% 0.0% 0.0% 100.0%
Cluster 3 19 0 0 16 0 3 0 0 16
0.0% 0.0% 84.2% 0.0% 15.8% 0.0% 0.0% 84.2%
Cluster 4 36 0 1 1 32 2 0 0 32
0.0% 2.8% 2.8% 88.9% 5.6% 0.0% 0.0% 88.9%
Cluster 5 26 0 0 0 0 26 0 0 26
0.0% 0.0% 0.0% 0.0% 100.0% 0.0% 0.0% 100.0%
Cluster 6 115 0 0 1 3 0 107 4 107
0.0% 0.0% 0.9% 2.6% 0.0% 93.0% 3.5% 93.0%

Cluster 7 29 0 0 0 1 1 1 26 26
0.0% 0.0% 0.0% 3.4% 3.4% 3.4% 89.7% 89.7%
Total predicted 8 3 16 32 26 107 26 218
companies correctly classified 100% 75.0% 88.9% 88.9% 81.3% 98.2% 86.7% 92.0%
conceptualized ‘types’ relating to ‘transitional family firms’ and ‘professional cousin

consortium family firms’ were not empirically validated.
5. Limitations of this study
Research relating to private family firms is associated with definitional and

methodological problems (Westhead and Cowling 1998, Sharma 2004). Several
studies have not been keyed into any theoretical debates. There are also a number of
concerns surrounding the size and representativeness of the samples gathered, the
techniques used, and the validity and the reliability of measures operationalized in
family firm studies. As earlier intimated, several limitations associated with previous
definitions were considered. A widely-used family firm definition was applied.
Variables selected were linked to the three themes highlighted by the agency and
stewardship perspectives. Further, an effort was made to gather a large and
representative sample of private family and non-family firms. Widely respected
traditional multivariate statistical techniques were used to identify the seven empirical
‘types’ of family firms. Validity issues were also considered.
Nevertheless, the exploratory empirical taxonomy presented in table 3 is associated
with several limitations. Information from only 237 private family firms was explored.
Future studies need to gather larger databases of private family firms, and increased
attention needs to be directed toward gathering a representative sample of
respondents. Measurement error and missing data issues also need to be considered
and carefully monitored. The relative importance of each of the 17 selected variables
in the taxonomy was not considered. Consequently, the importance of
particular variables (i.e. the weighting) warrants additional research attention.
Two conceptualized ‘types’ of family firms (i.e. ‘transitional family firms’ and ‘professional
cousin consortium family firms’) were not empirically validated. This, in part, may be due
to the relatively small size of the sample analysed, and the family firm definition
operationalized. Information from larger and representative samples of firms needs to

be gathered to explore the validity of the presented empirical taxonomy. Sensitivity
checks should also be run with regard to the operationalization of several narrow and
broad family firm definitions (Westhead and Cowling 1998). With reference to larger
data sets, a broad range of alternative cluster methods (such as average linkage
between groups, average linkage within groups, single linkage or nearest neighbour,
complete linkage or furthest linkage, centroid clustering, median clustering and
Ward’s method) (Norusis 1990) should be used, and the solutions need to be
compared to confirm cluster stability. However, Shaw and Wheeler (1985: 271) have
warned that testing group stability ‘may only multiply the effort unnecessarily’. Here,
evidence was solely gathered from the UK context. The validity of the presented
conceptual typology and the empirical taxonomy, therefore, needs to be explored in
a variety of national, cultural and industrial settings.
6. Conclusions and implications
6.1 Key findings
External environmental conditions (i.e. resource availability and competition for

resources) can shape business development (Vaessen and Keeble 1995) as well as the
objectives of firm owners. Entrepreneurs establish and run private firms for a variety of
reasons, and not to solely satisfy the sales, employment and profitability performance
objectives of policy-makers and practitioners. Some family firms do not solely focus on
‘business agendas’ (i.e. profit maximization). Entrepreneurs, for example, located in
rural communities may place less emphasis on profit maximization. Owners of family
businesses located in rural areas may place more emphasis on ‘family agendas’ and
broader ‘social agendas’ (i.e. social cohesion, protection of a local culture and/or a
minority language, employment of local people, utilization of local suppliers, etc.).
Academics are appreciating that there are different ‘types’ of entrepreneurs (Woo
et al. 1991, Birley and Westhead 1994, Miner 2000) and firms (Birley and Westhead
1990, Westhead 1995). This study explored a gap in the knowledge base relating to
family firm diversity. Most notably, this study has conceptually illustrated that family
firms cannot be viewed as a homogeneous entity. Guided by insights from the two
complementary theories relating to agency and stewardship perspectives, a novel
conceptual typology of family firm ‘types’ was presented. The three cross-cutting themes
of company ownership and management structures as well as company objectives were
used to illustrate differences between the six conceptual ‘types’ of family firms. Guided
by conceptual insights, cross-sectional survey evidence was used to derive an empirical
taxonomy of seven ‘types’ of family firms. Slightly over half of the surveyed firms were
not found to be ‘average family firms’. The latter empirical taxonomy was mapped on top
of the conceptual typology, and close alignment was detected. As discussed above, four
out of the six conceptualized ‘types’ of family firms were empirically validated (i.e.
‘average family firms’, ‘cousin consortium family firms’, ‘professional family firms’, and ‘open family
firms’). Presented evidence casts some doubts surrounding the wider validity and utility
of a ‘familiness’ continuum scale (Astrachan et al. 2002, Klein et al. 2005) to explore
family firm dynamics. Most notably, this study has illustrated that several distinct
‘types’ of family firms can be conceptually and empirically identified. The latter family
‘types’ can be used to provide fresh and contextualized insights surrounding the multi-
faceted family firm phenomenon.
Both the conceptual typology and the empirical taxonomy cast doubts on the
wider relevance and generalizability of theories and evidence that have failed to
consider family firm heterogeneity. Studies that have focused on firm performance
differences (i.e. sales, employment and profitability) between a single group of family
firms relative to a single group of non-family firms (Westhead and Cowling 1997) may
be flawed. Results from the latter ‘average comparison’ studies, for example, may have
been distorted by the contribution made by the numerically dominant group of
‘average family firms’ (Westhead and Howorth 2006). This study has highlighted that
internal firm contextual factors (i.e. company ownership and management structure
as well as company objectives) need to be simultaneously considered, because they can
all subsequently impact on firm behaviour and performance. Further, this study has
confirmed that additional practitioner and researcher attention is warranted to
explore the gap in the knowledge base relating to private family firm diversity (or
‘types’). In the following sub-sections, the implications associated with the presented
conceptual typology and empirical taxonomy for policy-makers and practitioners as
well as researchers are discussed.
6.2 Implications for policy-makers and practitioners
Policy is increasingly aimed at encouraging more nascent entrepreneurs and the

creation of new ventures, particularly those involved in knowledge and technology-
based activities (DTI 2004). As earlier intimated, some practitioners are seeking to
support superior (and weaker) performing existing firms (and entrepreneurs/
entrepreneurial teams) in order to maximize wealth creation and productivity
(Westhead et al. 2005). Practitioners seeking to reduce problems of regional and social
inequality are proactively promoting opportunity and wealth creation in deprived
communities by supporting ‘special groups’ of entrepreneurs and firms (DTI 2004).
While there is considerable debate surrounding the entrepreneurial event relating to
new firm formation, there is limited critical reflection relating to the development of
established firms that continually have to deal with the entrepreneurial process issues
(i.e. imagination, creativity, innovativess, proactiveness, etc.) required to ensure
business continuation. A considerable stock of entrepreneurial knowledge resides
within existing firms, and it may be more efficient to support established family firms,
rather than to solely increase the supply of more new businesses which have no
entrepreneurial experience of leverage (Ucbasaran et al. 2006). The following
discussion assumes an interventionist stance towards different ‘types’ of private
family firms.25
Policy-makers and practitioners should appreciate the aspirations, resources, needs
and financial and non-financial contributions of each ‘type’ of private family firm. The
firm development issues facing the majority of family firms (i.e. ‘average family firms’) may
not be the same as those cited by other ‘types’ of family firms. Rather than providing
‘blanket support’ available to all ‘types’ of family firms, there may be a need to
provide targeted support. The presented empirical taxonomy has shown that
information relating to company ownership and management structures as well as
company objectives (i.e. the 17 variables explored here) would be a useful means of
identifying particular ‘types’ of family firms in order to allocate assistance and resources.
In-depth and repeated dialogues with the owners of various ‘types’ of family firms by
practitioners, for example, may be are warranted to ensure continued family
involvement as well as move toward more continued entrepreneurship and professional
management (Johannisson and Huse 2000).
Policy-makers solely guided by insights from agency theory and a desire to
encourage wealth creation, job generation and competitiveness may provide support
measures that facilitate more ‘average family firms’ to adopt professional management
and governance practices, as well as an entrepreneurial orientation (DTI 2004). The
success of these measures could be monitored with regard to an increased focus on
business growth; an increased focus on financial objectives (i.e. profit maximization);
increased net capital investments in the supported businesses; an increased propensity
to sell equity to non-family members; an increased number of board and managerial
positions held by professional ‘non-family’ members, an increased utilization of
external professional expertise; an increased introduction of agency control mechan-
isms such as performance-related pay and NEDs; and an increased focus and
investment on innovation, etc. Policy-makers concerned with addressing social
exclusion and reducing regional inequality may, however, focus on support measures
that encourage more private family enterprise by under-represented groups (i.e.
women, ethnic minorities, people who are disabled, etc.), and in disadvantaged
communities (i.e. rural areas and former coal mining, steel and fishing communities,
etc.) (DTI 2004). Insights from stewardship theory may guide the provision of support
measures. The success of the support measures could be monitored with regard to an
increased rate of private family firm formation in disadvantaged communities and by
under-represented groups; an increased rate of enterprise survivability; an increased
propensity of managers and employees to have acquired transferable skills which could
be leveraged for personal empowerment; an increased usage of local suppliers; the
building of network bridges with actors positioned in practitioner networks who can
provide additional funding, market and legal information and potential customers;
and enhanced networks of trust between the family firm and local suppliers, customers
and financiers, etc.
6.3 Implications for researchers
Doubts can be cast surrounding the relevance and generalizability of theories that fail
to consider diversity. The presented discussion suggests implications for researchers in
respect of both theory building and empirical analysis. This study has highlighted that
family firms are not a homogeneous group. Further, some family firms do not have
equal enthusiasm or ability to focus upon improving their financial performance.
Future studies need to identify the ‘types’ of family firms associated with superior (and
weaker) levels of financial performance. Additional conceptual approaches relating to
the emerging entrepreneurial cognition and entrepreneurial experience and knowl-
edge literatures (Ucbasaran et al. 2006) need to be considered to explore the profiles of
different ‘types’ of family firms. Specifically, future studies may benefit from exploring
the following broad research question. How do the goals, competencies, resources and
ownership and management structures of firms shape the financial (and non-financial)
performance of different ‘types’ of private family firms?
Westhead and Howorth (2006) have asserted that family firm scholars need to
present an evidence base that can guide practitioner resource allocation decisions.
Scholars need to present clear research questions and theoretically derived hypotheses
(and variables) that consider family firm dynamics and complexity in more detail.
Further, they suggest that multivariate statistical techniques are required to test
anticipated relationships with reference to large and representative data sets. Valid
and reliable constructs need to be explored rather than single item scales. Several
financial and non-financial firm performance-dependent variables need to be explored
(Westhead and Cowling 1997). Future studies are required that either use specifically
designed questionnaires administered over time and/or the combination of these
instruments with archival data. Evidence presented in this study suggests that the
family firm context ‘type’ should be considered from the outset of research designs.
Qualitative researchers seeking to build theory could use the presented conceptual
typology (figure 1) as a platform for theoretical sampling linked to the agency and
stewardship perspectives. Responses from respondents could be mapped on top of
the six conceptualized ‘types’ of family firms. Researchers could gather information
relating to emerging research themes (i.e. the role of founder(s), next generation
family members, women and non-family employees; the value and type of contractual
agreements selected; the sources of conflict and the selected management strategies;
and the knowledge accumulation and dissemination processes reported within family
firms) (Sharma 2004). Most notably, qualitative studies could provide fresh insights
surrounding the important ‘how’ and ‘why’ questions and the role played by
contextual conditions. The knowledge and experience accumulated by family firm
members may be lost if the family firm does not change. Future studies could explore
‘why’ and ‘how’ some family firm owners seek to ‘professionalize’ their firms (Chittoor
and Das 2007). Monitoring family firm movement over time around the conceptual
typology ‘types’ could provide fresh insights into family dynamics and governance
issues. The critical incidents and causal issues associated with the movement from
‘average family firms’ to ‘professional cousin consortium family firms’, for example, could be
explained. Evidence from in-depth cases could then be used to revise the conceptual
typology, and after the data has ‘talked’ precise theoretically-derived propositions
could be reported (Howorth et al. 2004). The latter propositions could then be
subsequently explored in future qualitative and quantitative studies.
Acknowledgements
The authors would like to thank the Leverhulme Trust and the BDO Stoy Hayward
Centre for Family Businesses for their financial support. Our views do not necessarily
coincide with those of the sponsors. Views expressed here have benefited considerably
from the comments from two anonymous referees and Bengt Johannisson.
Notes
1. There is a lack of consensus surrounding the theoretical and operational definition of a family firm
(Handler 1989, Litz 1995, Chua et al. 1999). Definitions have been based upon three key issues:
majority share ownership (Cromie et al. 1995); whether members of an ‘emotional kinship group’
perceive it to be a family business (Gasson et al. 1988, Ram and Holliday 1993); and management by
members of a single dominant family group (Daily and Dollinger 1992). In addition, some researchers
have considered multiple conditions (see Westhead and Cowling 1998). Chua et al. (1999: 24) have
warned, ‘companies with the same level of family involvement in ownership and management may or
may not consider themselves family businesses and, more importantly, may or may not behave as
family businesses’. Some have suggested that each private firm should be monitored with regard to the
degree of ‘familiness’ (i.e. the extent of family influence) (Astrachan et al. 2002, Habbershon et al. 2003,
Klein et al. 2005).
2. The stereotypical family firm is closely-held, family owned and managed with little outside influence,
and the firm’s objectives are entangled with family objectives.
3. With reference to intentions of being a family firm and the dispersion of ownership and management,
Litz (1995) has presented a conceptual model of family firm definitions. The purpose of this study was
not to explore the validity of Litz’s conceptual model nor Sharma’s (2004) two by two conceptual
matrix. This study also did not seek to present or validate a general purpose classification that
distinguishes family firms from non-family firms or between different types of family firms (Sharma
2002, 2004). Shaw and Wheeler (1985: 255) have asserted that ‘there is no need for concern that
classification schemes of the same phenomenon may not yield identical results’.
4. Johannisson and Huse (2000) presented an ideological framework to explain the selection process of
outside directors by small family firms. They suggest that organizations enable owners to achieve their
goals (or dreams) and organizations are arenas for emotions and politics. This study is complementary
to that of Johannisson and Huse (2000). We did not seek to explore the validity of their conceptual
model, which was not designed to specifically examine different ‘types’ of private family firms.
5. The aim is to classify cases (i.e. firms) into groups (or clusters) comprising similar individuals, and
thereby to separate dissimilar individuals into different groups. Johnston (1980: 219) suggested that
a ‘classification should be based on some underlying theory about the nature of a group, even if not
about the probable groups in the data set to be explored’. Further, Shaw and Wheeler (1985: 255) have
asserted that ‘In all cases the classification should be geared towards the specific needs of the study and
should only be undertaken within some framework’. The analyst needs to be selective and it is rarely
desirable to consider a very large number of themes and variables.
6. Owners of family firms, who grow their firms in order to employ family members in key managerial
positions, may do this at the expense of firm profitability (Singell and Thornton 1997). The favouring
of family members may lead to more able non-family managers seeking employment outside the family
firm and may also retard firm development.
7. The problem of missing data was considered from the outset of the research design. The random and
stratified sampling procedure was selected because it is a probability sampling method. Hair et al.
(1995: 44) have asserted that ‘The process of generalizing to the population is really an attempt to
overcome the missing data of observations in the sample. The researcher makes this missing data
ignorable by using probability sampling to select respondents. Probability sampling allows the analyst
to specify that the missing data process leading to the omitted observations is random and that the
missing data can be accounted for as sampling error in the statistical procedures’.
8. Content validity was considered and the structured questionnaire was tested during a pilot exercise. An
early version was revised in line with comments and feedback from family firm practitioners and
academics. To source potential problems and address the problem of face validity, 30 limited liability
companies located on the Isle of Wight were contacted to pilot test the revised questionnaire. No major
problems were detected.
9. To reduce measurement error (Hair et al. 1995), the questionnaire was sent to key informants (Kumar
et al. 1993) who should have had sufficient knowledge to answer all presented questions.
10. Strong positive correlations were detected between the information gathered by the questionnaire and
the archival data provided by Dun and Bradstreet relating to business age and employment size
(i.e. Pearson correlation coefficients of 0.84 and 0.89, respectively, both significant at the 0.001 level
(one-tailed test)). We inferred that the data collected from the key informant was reliable.
11. Chi-square and Student’s t test analyses were conducted to detect response bias. With regard to
industry; location of the business by standard region as well as ‘assisted’ area location; age; employment
size and sales revenue of the company, no statistically significant response differences were detected
between the 427 valid respondents and 460 valid non-respondents. This evidence did not eliminate the
concern relating to non-response bias, but it did indicate some representativeness.
12. The randomness of the missing data relating to the 272 firms was monitored. Guided by Hair et al.
(1995: 53) a missing at random (MAR) randomness test was conducted. Each of the 17 ‘raw’ variables
was converted into dichotomous variables. With reference to each variable, valid values were allocated
a value of one and missing data allocated a value of zero. A correlation matrix was computed, and only
four significant correlations at the 0.05 level (1-tailed tests) were detected. It was concluded that no
single missing data process was significantly affecting a substantial number of variables.
13. There are two basic factor analysis methods: namely, common factor analysis and principal
components analysis (PCA) (see Davies 1984, Shaw and Wheeler 1985: 278–279, Hair et al. 1995:
375–377 for a detailed summary of both methods). The PCA method is selected if the aim is the
identification of uncorrelated linear combinations of the original set of variables (Norusis 1990), and
where the minimum number of components are required to account for the maximum portion of the
variance represented in the original set of variables (Hair et al. 1995). A closed system is assumed where
the statistical variation in the variables is explained by the variables themselves. PCA assumes high
correlations between all variables, with high common variances and low unique variances.
A component is a linear combination of the variables introduced in to the PCA. Components represent
the ‘underlying dimensions (or constructs) that summarize or account for the original set of observed
variables’ (Hair et al. 1995: 365). The common factor analysis method is selected if the objective of the
analysis is to search for some underlying variable structure. Analysts select the latter method when high
levels of measurement error are detected.
14. The degree of generalizability of the results from the PCA to the population was considered. A key
aspect of generalizability is the stability of the results from the PCA model. Component stability is
shaped by the size of the sample and the number of cases (i.e. firms) per variable. General rules are to
explore at least 100 cases and a minimum of 5 cases for each variable (Hair et al. 1995: 373).
Information from 237 firms relating to 17 variables was explored in the final model, representing
approximately 14 cases per variable. The reported analysis, therefore, did not suffer from the
‘overfitting’ data issue problem. We acknowledge that further confirmatory analysis is required, using
larger databases to explore the validity of the components identified by the PCA.
15. The assumptions of PCA are discussed in detail elsewhere (Davies 1984, Shaw and Wheeler 1985, Hair
et al. 1995). The conceptual assumption underlying PCA is that the selected variables are an
appropriate set of variables relating to theory and/or a conceptual model. PCA assumes that some
underling structure exists in the set of selected variables (Hair et al. 1995: 375). The correlation matrix
relating to the 17 ‘raw’ variables was inspected, and several correlation coefficients greater than 0.3
were noted. It was inferred that the data matrix had sufficient correlations to justify the application of a
PCA. The Bartlett test of sphericity is a statistical test for the presence of correlations among the
variables. Table 1 shows that the test statistic was significant at the 0.0001 level. We inferred that this
assumption had been satisfied, and ‘the correlation matrix had significant correlations among at least
some of the variables’ (Hair et al. 1995: 374). The Kaiser-Meyer-Olkin measure of sampling adequacy
is an additional measure to quantify the degree of intercorrelations among the selected variables, and
the appropriateness of the PCA. ‘The index ranges from zero to one, reaching one when each variable is
perfectly predicted without error by the other variables’ (Hair et al. 1995: 374). The score of 0.7 was
‘meritorious’ and highly acceptable.
16. A goal of PCA is to identify components that are substantively meaningful. The rotation phase
transforms the initial matrix into one that is easier to interpret. A varimax rotation method seeks to
minimize the number of variables that have high loadings on a component, in order to enhance the
interpretability of the components (Norusis 1990).
17. Each component loading was individually significant with regard to a sample size of 237 firms (Hair
et al. 1995: 385, table 7.3), and convergent validity was apparent with regard to all constructs (Bagozzi
and Yi 1991). Also, the constructs appeared to exhibit discriminant validity. Each variable loaded
significantly on only one of the six components.
18. On the downside, 38% of the total variance in the data was not accounted for by the six components.
The issue of loss of information is acknowledged (see section 3.3.1 and table 3).
19. Cluster analysis groups objects (i.e. cases/firms), while PCA groups variables. The QUICK CLUSTER
procedure can be used to cluster relatively large numbers of firms efficiently without requiring
substantial computer resources. Further, the procedure produces only one solution for the number of
clusters requested (Norusis 1990).
20. A key decision relates to the selection criterion, that is to say, the initial choice of variables determines
the characteristics that can be used to identify sub-groups (Hambrick 1984, Norusis 1990). Insights
from agency and stewardship theories provided a platform to identify conceptual ‘types’ of family firms
(figure 1). The selected cluster solution (or classification) solely relates to insights from these theoretical
perspectives. An exploratory cluster analysis was conducted in order to identify an objective
classification of objects (i.e. family firms). The identification of a general classification of family firm
‘types’ was not the objective of this study. Further, the purpose of this study was not to explore the
wider applicability of classifications presented elsewhere. A confirmatory cluster analysis was, therefore,
not conducted.
21. Cluster analysis, unlike PCA, is not a statistical inference technique, and does not have the same
stringent assumptions. The representativeness of the sample and multicollinearity assumptions,
however, should be considered. As indicated in section 3.1, a representative sample of respondents
responded to the survey, and tests did not indicate any problem of response bias. Information from 272
family firms was gathered, of which 237 firms provided complete data for the 17 ‘raw’ variables
analysed within the final PCA model. No marked differences were detected between the demographic
profiles of the 237 firms explored with the PCA and cluster analysis and the profiles of the total 272
responding firms. This evidence did not eliminate the concern relating to the representativeness of the
sample analysed, but it did indicate some representativeness. Also, the multicollinearity issue was
considered. The cluster analysis explored the 237 firms by 6 components matrix produced by the final
PCA model. Each of the 6 variables was an independent and orthogonal dimension (or construct).
Consequently, the cluster analysis was not distorted by variables significantly associated with one
another.
22. Cluster analysis groups objects (e.g. firms) based on the characteristics they possess. Objects are
grouped into clusters with other similar objects with regard to some predetermined selection criteria
(i.e. variables). The selected grouping solution (i.e. the selected number of clusters) should exhibit high
internal (within-cluster) homogeneity and high external (between-cluster) heterogeneity (Hair et al.
1995). The agglomerative hierarchical procedure begins with each of the 237 firms in a separate
cluster. In subsequent steps, objects (i.e. clusters/firms) that are closest together in squared Euclidean
distance (i.e. a measure of similarity between two objects) were combined to build a new aggregate
cluster. The centroid method calculates the distance between the two clusters as the distance between
their means for all of the variables (Norusis 1990).
23. Cluster analysis is sensitive to the inclusion of irrelevant variables (or undifferentiated variables).
Each of the 17 selected ‘raw’ variables was found to be distinctive in one or more of the seven clusters
(table 3). The selected cluster solution did not appear to be contaminated by the inclusion of irrelevant
variables.
24. Cluster 2 had only three members. It was viewed as a valid structural component in the sample (Hair
et al. 1995) and was not deleted as an unrepresentative outlier. Firms in cluster 2 exhibited the profiles
of ‘large open’ firms, which were conceptualized in figure 1.
25. There is considerable debate surrounding whether policy intervention is warranted to alleviate barriers
to entrepreneurial behaviour and business development (Holtz-Eakin 2000). To justify intervention in
a market economy it is necessary to identify precisely where the market failure exists, and whether it is
possible to rectify that market failure through intervention. The costs of the intervention have to be
carefully assessed and the benefits estimated (Storey 1994). A decision widely perceived as ‘correct’ in
the current time period may lead to an undesirable outcome in the future (Ferguson and Ferguson
1994). Advocates of a free enterprises economy system caution against interference with market forces
(Wright et al. 2007). Perfectly competitive markets are something of a myth (Bridge et al. 2003), and
neo-classical economic theory can be viewed as being an inappropriate basis for public policy
prescriptions (Ferguson and Ferguson 1994). Barriers that discriminate and prevent a level playing
field create market imperfections or market failure (Bridge et al. 2003) that can constrain firm
development (DTI 2004). Inevitably, owners of smaller private firms concerned with uncertainty and
risk will face attitudinal, resource (i.e. information, technology, finance, legitimacy, marketing, ‘family
agenda’, etc.) operational and strategic barriers to business development. The case for intervention to
address barriers can be supported from a public choice theoretical perspective.
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‘Types’ of private family ﬁrms: an exploratory

Two-thirds of private businesses in many countries are considered to be family ﬁrms

1.2 Family ﬁrm heterogeneity

1.3 Research focus and purpose

Private family ﬁrms shape economic development, particularly the development of

2. Conceptualized ‘types’ of family ﬁrms

2.2 Agency theory

Romano 1994) may introduce agency control mechanisms such as performance-

2.3 Stewardship theory

Emerging research questions may be more appropriately explored with reference to

2.4 Themes highlighted by the complementary theories

2.5 Company ownership structure

2.6 Management structure

Close Average family Professional family

Figure 1. Conceptualized ‘types’ of family ﬁrms.

2.7 Company objectives

members dominate management. A spectrum of objectives may be reported

2.8 Six conceptualized ‘types’ of family ﬁrms

Six conceptualized ‘types’ of family ﬁrms are highlighted in ﬁgure 1. A distinction is

3.1 Data collection

locational sampling proportions were simultaneously identiﬁed for a stratiﬁed random

Varimax rotated components

the responsibility of family members ({)

CI1 CEO is a member of the single dominant 0.87 0.33

3.2 Data standardization by Principal Components Analysis (PCA)

Cluster analysis (or classiﬁcations) can be distorted by unstandardized data and

3.3 Empirical taxonomy of seven ‘types’ of private family ﬁrms

3.3.1 Agglomerative hierarchical QUICK CLUSTER analysis

Determination of the appropriate number of clusters (or ‘types’) is a key arbitrary

Component 1 17.45 6 0.57 230 30.59 0.000

cluster.23 The combination of ‘raw’ variables that contributed to each of the

3.3.2 Cluster 1 – cousin consortium family ﬁrms

3.3.3 Cluster 2 – large open family ﬁrms

3.3.4 Cluster 3 – entrenched average family ﬁrms

3.3.5 Cluster 4 – multi-generation open family ﬁrms

3.3.6 Cluster 5 – professional family ﬁrms

3.3.7 Cluster 6 – average family ﬁrms

3.3.8 Cluster 7 – multi-generation average family ﬁrms

Predicted cluster membership Percentage of

0.0% 0.0% 0.9% 2.6% 0.0% 93.0% 3.5% 93.0%

conceptualized ‘types’ relating to ‘transitional family ﬁrms’ and ‘professional cousin

5. Limitations of this study

Research relating to private family ﬁrms is associated with deﬁnitional and

operationalized. Information from larger and representative samples of ﬁrms needs to

6. Conclusions and implications

6.1 Key ﬁndings

External environmental conditions (i.e. resource availability and competition for

6.2 Implications for policy-makers and practitioners

Policy is increasingly aimed at encouraging more nascent entrepreneurs and the

6.3 Implications for researchers

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